In entertainment accounting, there exists a mechanism to pay certain participants earlier in the waterfall than those who share solely in net profits. A "gross corridor" allows for such recipients to start earning and collecting payments before break-even or contractual net profits have been earned. However, since it is an uncommon case in modern times, many younger auditors do not understand the meaning of "gross corridor." Hint: it is not a dirty hallway!
While the term "gross corridor" itself is not named in many agreements, you can find these corridors, especially in older agreements, if you know what to look for. Most profit participants share in net profits (however defined in their agreements), but those with a "gross corridor" to or towards profit will additionally receive a percentage of contract-defined gross revenue (such as modified adjusted gross receipts or "MAGR").
For example, a studio could agree to pay talent two percent (2%) of MAGR between $50 and $100 million, plus five percent (5%) of defined net profits. Thus, for a picture earning $80 million in MAGR, the studio should report two percent (2%) of 30 million (the difference between $80 and $50 million) or $600,000 before the 5% share of any defined net profits.
To learn more, watch my video below.
